The formula incorporates support from pipeline companies like Gail which have agreed for cut in pipeline tariff and marketing margins, regasification terminal owners who will bear cut in regasification charges and state governments have agreed on cut in duties on gas.
Government approved pooling of imported gas and domestic gas for gas based power plants. The formula incorporates support from pipeline companies like Gail which have agreed for cut in pipeline tariff and marketing margins, regasification terminal owners who will bear cut in regasification charges and state governments have agreed on cut in duties on gas.
In addition, government will provide subsidy upto the power tariff of INR 5.5 per unit for purchasing gas based power. The biggest winner from this would be the stranded power asset owners such as Torrent Power, GMR, GVK. Overall, this will help the gas based power producers, banks which had funded the assets, pipeline companies and distribution companies.
Gas based power producers have agreed to forgo return on equity as government would help them by arranging for buyers of the power. Government will provide subsidy directly to the distribution companies for purchasing gas based power. This will help the gas based power plants to operate at a capacity utilization of about 30% and generate cash on their idle assets. This is critical because it will help them service their debt thereby, helping both power companies and banking sector.
We were pleased to hear that government has chosen reverse bidding process for decision on subsidy. Power producers will have to bid for lowest subsidy requirement through an e-auction process. We believe power generated would be suitable for meeting peak demand as gas based plants can turn on in couple of minutes. Thereby, during peak load, power prices will be balanced by increased supply from the gas based power and therefore, in a way it is beneficial for the distribution companies also.
However, since distribution companies are not in a financial condition to buy expensive power, therefore, we can not expect gas based power plants to operate at higher capacity utilization of 70-80% in the absence of adequate domestic gas supply. In terms of viability of the plan, prices of imported LNG in Asia have fallen by about 60% versus a year ago to about USD 7.5 per MMBTU. According to our estimates, if delivered gas prices remain at or below USD 9 per MMBTU, cost of power will remain within government’s target of INR 5.5 per unit. Till India does not have a long term cheap LNG supply contracts and its LNG requirements rely only on spot LNG prices, it is not possible to expect these plants to operate at optimum capacity utilization.
We believe pipeline companies like Gail would still derive incremental revenue from this policy owing to increase in the pipeline capacity utilization. Over the medium term, as regasification terminal projects fructify in different stages over the next couple of years, we would see a steady increase in supply of imported LNG and gas based power.
Government approved pooling of imported gas and domestic gas for gas based power plants. The formula incorporates support from pipeline companies like Gail which have agreed for cut in pipeline tariff and marketing margins, regasification terminal owners who will bear cut in regasification charges and state governments have agreed on cut in duties on gas.
In addition, government will provide subsidy upto the power tariff of INR 5.5 per unit for purchasing gas based power. The biggest winner from this would be the stranded power asset owners such as Torrent Power, GMR, GVK. Overall, this will help the gas based power producers, banks which had funded the assets, pipeline companies and distribution companies.
Gas based power producers have agreed to forgo return on equity as government would help them by arranging for buyers of the power. Government will provide subsidy directly to the distribution companies for purchasing gas based power. This will help the gas based power plants to operate at a capacity utilization of about 30% and generate cash on their idle assets. This is critical because it will help them service their debt thereby, helping both power companies and banking sector.
We were pleased to hear that government has chosen reverse bidding process for decision on subsidy. Power producers will have to bid for lowest subsidy requirement through an e-auction process. We believe power generated would be suitable for meeting peak demand as gas based plants can turn on in couple of minutes. Thereby, during peak load, power prices will be balanced by increased supply from the gas based power and therefore, in a way it is beneficial for the distribution companies also.
However, since distribution companies are not in a financial condition to buy expensive power, therefore, we can not expect gas based power plants to operate at higher capacity utilization of 70-80% in the absence of adequate domestic gas supply. In terms of viability of the plan, prices of imported LNG in Asia have fallen by about 60% versus a year ago to about USD 7.5 per MMBTU. According to our estimates, if delivered gas prices remain at or below USD 9 per MMBTU, cost of power will remain within government’s target of INR 5.5 per unit. Till India does not have a long term cheap LNG supply contracts and its LNG requirements rely only on spot LNG prices, it is not possible to expect these plants to operate at optimum capacity utilization.
We believe pipeline companies like Gail would still derive incremental revenue from this policy owing to increase in the pipeline capacity utilization. Over the medium term, as regasification terminal projects fructify in different stages over the next couple of years, we would see a steady increase in supply of imported LNG and gas based power.
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